Exchange Rate Economics

The Uncovered Interest Parity Puzzle and Other Anomalies

Norman C. Miller, Professor of Economics, Farmer School of Business, Miami University, US

The Uncovered Interest Parity (UIP) puzzle has remained a moot point since it first circulated economic discourse in 1984 and, despite a number of attempts at a solution, the UIP puzzle and other anomalies in Exchange Rate Economics continue to perplex economic thought in international finance. This fundamental book fill gaps in scholarly literature by amalgamating key discourse to generate synthesis models which appear consistent with the UIP puzzle and related anomalies, uniquely bringing them together in one place. Through a comprehensive and current review of the literature, Norman C. Miller reveals new explanations for exchange rate anomalies and offers an alternative approach towards the UIP puzzle, stimulating and guiding future research.

‘In this impressive work, Norman Miller tackles a central – perhaps the central – puzzle in international finance: why it is that changes in exchange rates do not equalize returns across borders. In this comprehensive treatment, Miller surveys and synthesizes the recent empirical literature to develop a new interpretation of exchange rate behavior, incorporating a central role for the carry trade. All serious researchers in the field need to read this important book.’
Menzie Chinn, University of Wisconsin, US

‘This excellent book develops carefully all of the research on uncovered interest parity, the puzzles that arise from its poor empirical performance, and other puzzling features of exchange rate behaviour of the last 30–40 years. It also develops several fresh ideas on how to model exchange rates with a simple intertemporal model, which I find very appealing. The book will appeal to academics and graduate students working in international macroeconomics and finance, market participants, policy makers and their staff.’
– Lucio Sarno, City University London